Questions from investors abound in Stanford case

Questions from Stanford investors abound

Copyright 2009 Houston Chronicle

Published 6:00 am, Wednesday, February 25, 2009

Chronicle personal finance columnist Shannon Buggs answered readers’ questions about the status of investments in companies affiliated with Stanford Financial Group, the network of financial service and banking entities headed by Texas billionaire R. Allen Stanford. It has been placed in receivership and its assets frozen in connection with a civil fraud complaint by the Securities and Exchange Commission.

Q: My husband and I are retired. He has invested his life savings with Stanford Group Co. here in Houston. Do you think his investments such as mutual funds, exchange-traded products, and cash, money funds, and FDIC deposits are safe? Stanford’s offices have been closed, and our financial officer isn’t answering his phone.

A: I wish I had good news. But at this point, regulators and the receiver put in charge of Stanford Group Co.—a broker-dealer arm of Stanford Financial Group— are not releasing details regarding the whereabouts of clients’ assets or their safety.

While you wait for the officials to start sharing information, start pulling together every document you have about the money and investments you placed in Stanford’s care. Your records will back up your claims.

Q: We had money with Stanford. Do you think we have lost everything?

A: No. Stanford is a member of the Securities Investor Protection Corp. The nonprofit insurance company protects client’s assets up to $500,000 for securities, including $100,000 for cash. However, the coverage only kicks in when a member institution fails. Right now, the Stanford Group Co. has not failed.

Q: What is a clearing firm and why does it have custody of the money I invested with Stanford?

A: Clearing firms sit at the center of transactions to buy and sell stocks, bonds, mutual funds and other securities. These companies handle the confirmation of buy and sell orders placed by broker-dealers, deliver securities to new owners’ accounts and settle payments.

If a party on either side of the transaction fails to hold up its end of the deal, the clearing firm steps in with its own resources to make sure the other party gets what it expects. It’s that capacity to keep the flow of securities trading going that has made clearing firms vital.

Clearing firms hold on to the assets of broker-dealer’s clients to keep the trans-actions flowing as quickly as possible. That makes them the custodians of your cash and securities managed by your broker-dealer.

Q: (My investment advisory firm has) had Stanford clients come in with their statements. At the bottom of the statements, it’s noted that Pershing is the custodian. The funds at the Bank of Antigua are stuck, but individual investor accounts in mutual funds should be able to transfer. Am I wrong?

A: Yes, you’re wrong. A federal judge has frozen all assets controlled by Stanford so nothing can be released to clients at this time.

And, clearing firms typically take their orders about what to do with the assets they hold from broker-dealers, not individual clients.

As a clearing firm for securities trades by Stanford Group Co., Pershing is a custodian of assets for Stanford customers, said Pershing spokeswoman Barbara Gallo.

“Until further notice, Stanford’s clients’ brokerage accounts held at Pershing have been frozen on request from the receiver and no funds or securities may leave the brokerage accounts without the receiver’s approval,” Gallo said.

J.P. Morgan Clearing Corp.’s spokesman declined comment.

The receiver did say last week that Stanford clients can direct their brokers to sell securities in their Stanford accounts, but they cannot withdraw money from those accounts. This might be helpful to you if your stock investments are rapidly dropping in value and you want to stop your losses.